Order Code RS21507
Updated July 23, 2003
CRS Report for Congress
Received through the CRS Web
Project BioShield
Frank Gottron
Analyst in Science and Technology Policy
Resources, Science, and Industry Division
Summary
Many potential biological terrorism agents lack available countermeasures.
President Bush proposed Project BioShield to encourage companies to develop new
bioterror countermeasures. The main provisions of that proposal include: (1) relaxing
procedures for bioterrorism-related procurement and peer review; (2) guaranteeing a
market through contract authority granted to the Secretary of Health and Human
Services (HHS) to buy countermeasures following Presidential approval, funded by a
permanent, indefinite appropriation; and (3) allowing the Secretary of HHS to permit
the emergency use of unapproved countermeasures. S. 15 (Gregg) incorporates these
proposals. H. R. 2122 (Tauzin) is similar to S. 15. The largest difference is rather than
creating a permanent, indefinite appropriation, H. R. 2122 establishes a special fund and
authorizes the subsequent appropriation of up to $5.593 billion for the purchase of
countermeasures through FY2013.
Some provisions of Project BioShield are
controversial. Some critics suggest that biotechnology and pharmaceutical companies
will require even more incentives than contained in these proposals.
Additional
incentives being considered by the 108th Congress include protection from litigation
because of adverse reactions to the countermeasures, and tax and intellectual property
incentives (S. 666, Lieberman). Other options include directly funding development or
increasing the scope of existing federal programs designed to encourage technology
commercialization. This report will be updated in response to legislative developments.
Introduction
The anthrax attacks in the fall of 2001 underscored the nation’s vulnerability to
biological terrorism. Five people were killed by those attacks and thousands required
prophylactic antibiotic treatment. If there had not been effective medical countermeasures
for this strain of anthrax, the death toll would have been higher.
Effective
countermeasures exist for few of the biological threats deemed the most dangerous by the
Centers for Disease Control and Prevention (CDC).1
1 National Institute of Allergy and Infectious Disease. NIAID Biodefense Research Agenda for
CDC Category A Agents
. Department of Health and Human Services. Washington, DC. 2002.
Congressional Research Service ˜ The Library of Congress

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Many attribute the paucity of bioterrorism countermeasures to the lack of a
significant commercial market.2 Because these diseases occur infrequently, there has been
little economic incentive for the investment of the millions of dollars required to bring a
new treatment to market.
Project BioShield
To encourage the development of new bioterrorism countermeasures, President Bush
proposed Project BioShield in his 2003 State of the Union address. The Biodefense
Improvement and Treatment of America Act (S. 15, Sen. Gregg), as reported by the
Senate Committee on Health, Education, Labor and Pensions, contains the administration
proposal, with some revisions. The corresponding House bill, The Project BioShield Act
of 2003 (H. R. 2122, Tauzin), contains many of the same provisions. The House passed
H. R. 2122 on July 16, 2003. S. 15 and H. R. 2122 provide expedited procedures for
bioterrorism-related procurement and peer review of research and development (R&D)
proposals, making it easier for HHS to quickly commit substantial funds to
countermeasure projects. The Secretary of HHS would be granted contract authority to
purchase countermeasures approved by the President. Another provision would give the
Secretary of HHS the power to temporarily allow the emergency use of countermeasures
that lack Food and Drug Administration (FDA) approval.
The largest difference between the bills is how each would fund the purchase of
countermeasures. S. 15 authorizes and appropriates for each fiscal year in perpetuity
“such sums as may be necessary” to procure countermeasures. This mandatory funding
is not subject to the annual appropriations process.
In contrast, H. R. 2122 does not
appropriate any money, but establishes a special fund for the purchase of countermeasures
and authorizes the appropriation of up to $5.593 billion total for the fiscal years 2004 to
2013. An additional difference between the bills is the additional reports required by H.R.
2122. The House version requires annual reports from the Secretary of HHS about the
exercise of the authorities granted in this bill. Four years after enactment, H. R. 2122
requires a National Academy of Sciences review of how countermeasure development has
been helped by this act and to suggest any additional actions that would be helpful.
Relaxing Acquisition Procedures. Both S. 15 and H. R. 2122 would relax
procedures under the Federal Acquisition Regulation for procuring property or services
used in performing, administering, or supporting biomedical countermeasure R&D. They
would increase the threshold, from $100,000 to $25 million, for contracts awarded under
simplified acquisition procedures. Each proposal would also allow these purchases using
other than full and open competition. Another provision would increase the micro-
purchase threshold from $2,500 to $15,000. These increases are similar to, but greater
than, changes granted to the DHS and other departments and agencies in the Homeland
Security Act (HSA, P.L. 107-296). The HSA provisions sunset in 2007 (DHS) and 2003
(other federal agencies) but the changes proposed in both bills are permanent. They
would decrease the amount of paperwork required for these types of purchases, but also
the potential for oversight. H. R. 2122 requires the HHS Secretary to report the use of
these provisions annually to Congress.
2 Ceci Connolly. “U.S. Hopes Incentives Will Push Vaccine Development.” Washington Post.
January 30, 2003. p. A08.

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Expedited Peer Review. S. 15 and H. R. 2122 would authorize the HHS
Secretary to use an expedited award process, rather than the normal peer review process,
for grants, contracts, and cooperative agreements related to biomedical countermeasure
R&D activity, if the Secretary deems there is a pressing need for an expedited award.
This power is limited to awards of not more than $1.5 million. Whether these procedures
would apply to only a few such awards, or to many, will depend on what needs the
Secretary considers pressing. Some have expressed concerns that an expedited peer
review process will reduce the quality of the research.3 Peer review is designed to
maximize the chances that only proposals with the greatest scientific merit get funding.
The award process is not described in detail in the bill.
Market Guarantees. A major provision of Project BioShield is designed to
reassure biotechnology and pharmaceutical companies that if they successfully develop
a new biological countermeasure, the government will buy it for inclusion in the Strategic
National Stockpile (SNS).
The SNS contains pharmaceuticals, vaccines, medical
supplies, and medical equipment designed to help respond to terrorist attacks and other
emergencies. S. 15 and H. R. 2122 would allow the HHS Secretary, with concurrence of
the DHS Secretary and upon the approval of the President, to contract to purchase a
product up to five years before the product is reasonably expected to be deliverable.
Congress would be notified of a purchase by the DHS Secretary after the President
approves it.
The Bush Administration has stated that the best method to reassure companies that
the money will be available to purchase countermeasures is to exempt those funds from
the uncertainties of the annual appropriations process by funding the contract authority
with a permanent, unlimited appropriation for that purpose.4 S. 15 incorporates this
concept. Although the permanent appropriation is intended to create market guarantees,
it is unclear if it is sufficient or necessary. First, any permanent appropriation is subject
to the actions of a subsequent Congress and President. Second, contract authority funded
by a specific appropriation amount, such as at the level estimated by the Administration,
conceivably could provide similar incentives and assurances to individual companies as
much as contract authority funded by a permanent, unlimited appropriation. H. R. 2122
would use such specific appropriations to fund a special fund.
The Administration estimates using $5.6 billion over 10 years to purchase
countermeasures, although S. 15 permits expenditure of “any moneys in the Treasury not
otherwise appropriated.” The Congressional Budget Office projects that S. 15 would cost
approximately $8.1 billion over 10 years, 45% more than the Administration estimate.
H. R. 2122 authorizes the appropriation of up to $5.593 billion over for fiscal years 2004
through 2013. Under both proposals, these funds could not be used for administrative
costs or to purchase vaccines under procurement contracts entered into before January 1,
2003 (under S. 15) or before enactment of Project BioShield (under H. R. 2122).
3 John Miller. “Interview with Richard Ebright.” The Scientist. Vol. 17 (7). April 7, 2003. p. 52.
4 Anthony S. Fauci. Testimony before the U.S. House Committee on Energy and Commerce
Health Subcommittee and Select Committee on Homeland Security. March 27, 2003.

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Several have criticized some of the provisions of S. 15.5 Although it is meant to
address the perception of an urgent and presumably transient need for upgrading the SNS,
there is no sunset clause to this appropriation under S. 15. In contrast, H. R. 2122 would
return any unobligated funds to the U.S. Treasury after FY2013. Some critics have
expressed concern over S. 15 for changing the nature of congressional oversight from the
continuous and consultative annual appropriations process to one of simply reviewing
executive decisions after the fact. Under H. R. 2122, the fund would be subject to annual
review through the appropriations process. Furthermore, H. R. 2122 would require the
HHS Secretary to prepare annual reports detailing actions taken under this Act including
identification of each person or entity that received, or was considered and rejected for
grants, cooperative agreements, or contracts under this Act.
To qualify for purchase, S. 15 would require the HHS Secretary to determine that
there is no other significant market for the countermeasure other than as a biological
countermeasure. Some have suggested that this will not encourage the development of
some of most useful countermeasures such as new wide-spectrum antivirals or antibiotics,
since these might be used against common naturally-occurring diseases. Such nonspecific
countermeasures might be the best defense against currently unknown threats such as
emerging diseases or genetically engineered pathogens. H. R. 2122 would require the
HHS Secretary only to factor whether there is a lack of a significant commercial market
into the decision to recommend the purchase of a countermeasure.
Exemptions to FDA Approval Process. S. 15 and H. R. 2122 allow the
purchase of unapproved and unlicenced countermeasures. S. 15 requires that the HHS
Secretary determine that there is “...sufficient and satisfactory clinical experience or
research data... [to] support a reasonable conclusion that the product will qualify for
approval or licensing... within 5 years.” H. R. 2122 omits the 5 year constraint. The
approval and licensing processes are designed to preclude the marketing of ineffective and
dangerous treatments. Only about 1 of 5 drugs that begin the approval process actually
become approved treatments.6 Because it is not possible to predict the outcome of the
approval process, critics of this provision suggest that the government will end up
purchasing countermeasures that will eventually fail to be approved. To reduce the risk
associated with this provision, S. 15 and H. R. 2122 allow contracts to be written so that
unapproved products may be purchased at lower cost than approved products.
S. 15 and H. R. 2122 would allow the HHS Secretary to authorize the emergency use
of medical products that have not yet been approved by the FDA or HHS. To exercise
this authority the HHS Secretary must conclude: 1) the agent for which the
countermeasure is designed can cause serious or life-threatening disease; 2) the product
may reasonably be believed to be effective in detecting, diagnosing, treating, or
preventing the disease; 3) the known and potential benefits of the product outweigh its
known and potential risks; 4) there is no adequate alternative to the product that is
approved and available; and 5) any other criteria prescribed in regulation are met.
5 Lisa Richwine. “Concerns Raised About Funding for U.S. Biodefense Program.” Reuters.
March 27, 2003.
6 Food and Drug Administration. From Test Tube to Patient: Improving Health Through Human
Drugs
. Washington, DC. September 1999. p.21.

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Although this provision would permit the Secretary to circumvent the FDA approval
process, its use would be limited to dire circumstances.
Policy Options
Alternative Contract Mechanisms.
Some have suggested that the new
contracting authority granted by S. 15 or H. R. 2122 would more effectively encourage
countermeasure development if modeled after that used by the Defense Advanced
Research Projects Agency (DARPA). DARPA funds many projects with a high risk of
failure. These contracts often last a few years and can be renewed if specified milestones
are met. Companies are allowed to make a defined profit during the development phase.
Although the direct funding of risky development projects implies that the government
will end up funding many products that never make it to the market, the government could
structure the contracts so that this assumption of development risk translates into lower
costs of procurement.
This may allow companies to more easily justify to their
stockholders the opportunity costs associated with developing a new countermeasure.
They would be trading uncertain potential earnings for a guaranteed, albeit lower, profit.
Indemnification. Some feel that one of the largest barriers preventing more
companies from developing countermeasures is risk of litigation stemming from adverse
effects.7 Some manufactures would like to see a program developed similar to the
National Vaccine Injury Compensation Program (P. L. 99-660), which provides an
alternative to the traditional tort system for resolving claims of adverse reactions.
Another alternative is a complete indemnification such as the one granted for the
smallpox vaccine by the HSA (P. L. 107-296). Another provision of the HSA, the
SAFETY Act, limits the tort liability of sellers of anti-terrorism technologies.8 Since
these limits do not apply to harm caused when no act of terrorism has occurred, this
provision might not cover products, such as vaccines or detectors, that might be deployed
when an attack is only suspected or threatened. Sellers of such technology may feel that
they still have an unacceptable risk of litigation stemming from adverse effects of their
products.
Increasing Basic Research. Congress has recently increased National Institute
of Allergy and Infectious Diseases bioterrorism research six-fold to approximately $1.5
billion in FY2003. It is difficult to determine the optimal level of funding for basic
research, but at some point the law of diminishing returns will apply. Some have
suggested that this has already occurred and will inevitably lead to funding of unworthy
projects.9 Other critics suggest that the bottleneck for new countermeasures is in the
transfer of promising leads from basic research to the development stage.
Alternative Policies to Encourage Technology Commercialization. There
are other federal programs designed to encourage research, development and
7 Dr. Kim Bush. Testimony before the of the U.S. Senate Committee on Health, Education,
Labor, and Pensions, Health Subcommittee. January 30, 2003.
8 See CRS Report RL31649 Homeland Security Act of 2002: Tort Liability Provisions.
9 John Miller. “Bioterrorism research: New Money, New Anxieties.” The Scientist. Vol. 17(7),
April 7, 2003. p. 52.

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commercialization of new treatments. For example, the Orphan Drug Act (P. L. 97-414)
encourages development of new treatments for very rare diseases through tax incentives
and market exclusivity agreements.10
Other federal programs include: cooperative
research and development agreements (CRADAs) between government laboratories and
universities or industry; the Advanced Technology Program which provides seed money
to develop generic technologies that have broad application across industries; the Central
Intelligence Agency funded non-profit venture capital corporation In-Q-Tel; the Small
Business Technology Transfer Program; and the Small Business Innovation Research
Program.11 In contrast to Project BioShield’s promise of a market at the end of a long and
risky development process, each of these programs offers direct help during the
development process and provides incentives for commercialization of the results. Some
have suggested expanding these programs will make the market guarantees in Project
BioShield more effective in encouraging countermeasure development.
Other Legislative Proposals
The Biological, Chemical, and Radiological Weapons Countermeasures Research
Act (S. 666, Sen. Lieberman) includes additional economic incentives to encourage
development of bioterrorism countermeasures. In addition to offering market guarantees,
S. 666 includes tax and intellectual property rights incentives. Among the tax incentives
available are the ability to issue a special class of stock to fund the research that would
not subject investors to any capital gains tax and special tax credits to help fund the
research. Intellectual property incentives include the lengthening of patent term for
countermeasures or a two-year extension of any unrelated patent held by the corporation.
S. 666 also includes indemnification provisions, limited antitrust exemptions, and
incentives to increase research and manufacturing capacity.
Conclusions
It is difficult to forecast if Project BioShield would provide enough incentives for the
development of new bioterrorism countermeasures. In congressional testimony, several
industry witnesses have been supportive of the proposal but have also called for more
incentives.12 Some have noted that Project BioShield may entice smaller companies to
develop countermeasures while larger pharmaceutical companies may still find the
guaranteed market too small to justify the opportunity costs associated with redirecting
development efforts from potentially much larger markets.13 Such companies may find
that the unrelated-patent extension provision in S. 666 provides enough incentive to
justify the opportunity costs to their stockholders. These issues will likely face Congress
during any debate on this legislation.
10 See CRS Report RS20971 Orphan Drug Act: Background and Proposed Legislation in the
107th Congress
.
11
See CRS Report 95-50 The Federal Role in Technology Development and CRS Issue Brief
IB91132 Industrial Competitiveness and Technological Advancement.
12 U.S. House Committee on Energy and Commerce Health Subcommittee and Select Committee
on Homeland Security. March 27, 2003.
13 Andrew Pollack and Melody Petersen. “Untested Companies Enlist in U.S. Biodefense.”New
York Times.
March 23, 2003.